Brace for more fuel price pain
Mbongeni Mguni | Monday May 23, 2022 04:04
As a nationwide strike by commuter transporters entered its third day on Thursday, the Botswana Energy Regulatory Authority (BERA) warned that the average P1.92 increase in petrol and diesel pump prices effected last week was still below the level required for local fuel suppliers to break even.
Fuel prices have risen seven times since January 2021 and a litre of ULP 93 petrol that cost P9.60 in May last year in Gaborone, now costs P15.24, an increase of nearly 60 percent. Under-recovery, or the situation where pump prices are below actual costs incurred by oil companies in importing fuel has stubbornly persisted throughout the hikes, as international crude prices have escalated, while the troubled National Petroleum Fund (NPF) has not been able to perform its role of providing a subsidy buffer for consumers.
“The quantities that we used to make the last adjustment were basically on unit rates for the month of March and if we had adjusted at that time, we could have cleared the under-recovery for petrol and diesel and half the rate for paraffin,” BERA’s petroleum pricing specialist, Merapelo Tautona told Mmegi on Thursday. “The adjustment came more than a month later when we had already published new unit rates for AprilFor April, the under-recovery for unleaded 93 was about P1.52, for unleaded 95 it was P1.55, for diesel P3.36 and for illuminating paraffin P4.70. While last week’s price increases shaved off some of the under-recovery, the escalating international oil prices mean the gap in the under-recovery is widening daily. On Thursday, crude oil prices were up 74 percent for the year, driven by the chaos caused by the war in Ukraine'', added Tautona..
BERA explains that Russia’s invasion of Ukraine and the resultant sanctions on Moscow have disrupted global oil markets, pushing prices by more than 30% from February 24 when the attack began. However, besides the war, tensions in the Middle East and a loss of refining capacity in South Africa, have all added pressure to fuel prices. The global economy’s recovery from the impact of COVID-19 and other factors had already seen international oil prices surge past the US$100 per barrel level in February, the first time since 2014.
Furthermore, Tautona said the trend was due to continue. “As we speak, prices are increasing and the under-recoveries are increasing and there is no way that we achieve over-recovery anytime soon. “We are trying to chase what’s happening in terms of the rise in oil prices,” he said. Oil industry experts say the only option for relief for Batswana is if government pumps funds into the National Petroleum Fund (NPF), which would pay off more of the arrears owed to local oil companies and temporarily stave off pump price increases.
The NPF is funded by the fuel levy paid on pump prices and in turn is supposed to act as a “subsidy” by paying oil companies the gap between the costs incurred in bringing fuel to the country and actual price of the fuel. In situation of under-recovery, oil companies sell at the pump price and claim from the NPF.
Instead, ever since its depletion in a P250 million scandal dating back to 2017, government has racked up hundreds of millions of Pula in arrears to the oil companies as international oil prices have generally trended upwards.
In October last year, BERA CEO, Rose Seretse told a parliamentary committee that the NPF had a balance of P451 million as at September 22, 2021, against an amount of P525 million being claimed by oil companies.
Government has previously diverted budget allocations from some ministries and projects in order to either restock the NPF or reduce its arrears to the oil companies.
However, Mmegi is informed that the pace at which international oil prices are rising and the possibility that the Russian war could last throughout the year, mean once-off interventions by government will have limited relief.
Besides an NPF bail-out, another option, an industry insider said, was for government to allow BERA to make monthly adjustments to pump prices, which, while painful for consumers, would be preferable to the infrequent shock adjustments.
The alternative, the insider said, is to wait for international prices to reach a ceiling when countries are forced to reduce their demand and at which point, prices would then cool in line with the cyclical nature of the oil industry.
Meanwhile, Tautona urged motorists to adopt fuel efficiency and conservation strategies in order to cope with the higher prices of fuel.
“Try and avoid unnecessary movements as well as travelling during peak hours. “Also try and avoid traffic congested routes,” he said.
BERA has also previously advised motorists to avoid speeding in order to reduce their fuel consumption.